A growing number of American workers are confronting a frustrating predicament on payday: to get their wages, they must first pay a fee.

For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers. Employees can use these cards, which work like debit cards, at an A.T.M. to withdraw their pay.

But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards.

These fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account, according to interviews with consumer lawyers, employees, and state and federal regulators.

Devonte Yates, 21, who earns $7.25 an hour working a drive-through station at a McDonald’s in Milwaukee, says he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll card.

“It’s pretty bad,” he said. “There’s a fee for literally everything you do.”

The corporations find it cheaper and easier to use the cards rather than print/mail checks or deposit compensation directly, and while some employers offer workers a choice, employees are strongly encouraged to take the cards (burdensome paperwork is required for the alternatives). The New York Times report noted a calculator on Visa‘s site estimates that a company with 500 workers could save $21,000 a year by switching from checks to payroll cards, so many are doing exactly that.

And whatever happened to choice? These people work really hard in these service jobs, and sometimes this is the only job that many can find, even those who were once professionals pulling down high salaries, and they have to pay exorbitant fees just to get access to their little money?

Many employees say they have no choice but to use the cards: some companies no longer offer common payroll options like ordinary checks or direct deposit.

At companies where there is a choice, it is often more in theory than in practice, according to interviews with employees, state regulators and consumer advocates. Employees say they are often automatically enrolled in the payroll card programs and confronted with a pile of paperwork if they want to opt out.

“We hear virtually every week from employees who never knew there were other options, and employers certainly don’t disabuse workers of that idea,” said Deyanira Del Rio, an associate director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

And who is making big book off the fees? NetSpend, although Chase, Bank of America and Wells Fargo are right behind this company in issuing cards.

The largest issuer of payroll cards is NetSpend, based in Austin, Tex. Chuck Harris, the company’s president, says it attracts companies by offering convenience to employees and cost savings to employers.

“We built a product that an employer can fairly represent to their employees as having real benefits to them,” he said.

Natalie Gunshannon, a 27-year-old McDonalds employee pictured with her daughter Anie, filed suit against her employer for not allowing her to deposit her check into her credit union rather than to a prepaid debit card that would have charged her fees to access her money; the McDonalds franchisee later ended the practice after the New York Times article exposed this new money-scalping trend occurring among the working poor on Monday (Courtesy: NYT)

For a short time, I used NetSpend, and frankly, to me, this company is worse than a Mafia organization. There was always a fee every which way I turned, coming out with considerably less than what what I had when I was paid as a temp employee. As soon as I made some big money, I cleared up my indebtedness to a bank and was able to get a bank account once more.

On some of its payroll cards, NetSpend charges $2.25 for out-of-network A.T.M. withdrawals, 50 cents for balance inquiries via a representative, 50 cents for a purchase using the card, $5 for statement reprints, $10 to close an account, $25 for a balance-protection program and $7.50 after 60 days of inactivity, according to an April presentation by the company reviewed by The Times.

So why is all this happening? Congress and the Obama Administration cracking down on bank fees garnered from regular, middle-class customers. So the banksters and private card issuers are trying to recoup those fees by preying on poorer customers who have no access to bank accounts or have poor or bad credit. Prepaid cards and payroll cards were the loopholes in these new regulations.

For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative — the products were largely untouched by recent financial regulations. As a result, some of the nation’s largest banks are expanding into the business, banking analysts say.

The lack of regulation in the payroll card market, while alluring for some of the issuers, can potentially leave cardholders swimming in fees. Take the example of inactivity fees that penalize customers for infrequently using their cards. The Federal Reserve has banned such fees for credit and debit cards, but no protections exist on prepaid cards. Cards used by more than two dozen major retailers have inactivity fees of $7 or more, according to a review of agreements.

Mr. [Eric] Schneiderman’s office is examining whether the companies have violated state labor laws, say the people briefed on the matter who were not authorized to discuss the investigation publicly. Under New York law, employees must give their explicit consent before companies can credit funds to a payroll card.

His office is also investigating whether the employers are forcing workers to use payroll cards as a condition of their employment, these people said. State law also requires that employees have an option for getting their wages without incurring any fees.

“We are concerned about excessive or insufficiently disclosed fees which may unduly reduce employees’ take home pay,” Mr. Schneiderman’s office told employers, according to letters reviewed by The Times.

In the first stage of the inquiry, the attorney general is collecting more information about the use of payroll cards. His office is ordering employers to turn over documents that prove employees have given consent before being enrolled in the cards.

The prosecutor is also examining fee schedules to determine how the fees are accrued. The companies are required to also provide “a summary report of all fees paid by employees” that add up “as a result of payroll cards which they have been issued,” the letters said.

The owners of 16 of the chain’s local restaurants succ­umbed Monday to the pressure of a lawsuit (filed by Natalie Gunshannon) and mounting negative publicity – including a front-page report in The New York Times – and said they would end the controversial practice of only paying employees with fee-laden debit cards.

The 16 regional McDonald’s stores owned by Albert and Carol Mueller of Clarks Summit will now give employees the choice of being paid by check, direct deposit or payroll card, a spokeswoman for the company said Monday, hours after the Times article appeared.

West Pittston attorney Michael Cefalo, who filed the class-action lawsuit, said it’s clear the lawsuit and negative national attention finally pushed the local owners to do the right thing.

“They’re moving in a direction they should have been moving in all along. We’re happy in a sense, gratified in a sense, but it doesn’t alter the lawsuit,” said Mr. Cefalo.

The lawsuit hastened a national focus on the growing use of the payroll cards by companies attempting to limit payroll expenses.

People are getting organized. If you are experiencing this kind of thing happening where you work, you have rights; look into them. It should not be happening, because it is your money and you earned it. Ask to get your paycheck deposited automatically, and if you can’t, just make a one-time per month withdrawal of your money, and keep it in a safe place. But by all means, fight this on a larger scale. Talk to each other about contacting your state’s attorney general or equivalent. Get your local representatives state senators and/or assembly people or congress people to respond to this trend. Penalized for drawing a paycheck?

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